Great Offshore

Building on balance sheet strength 

In the last week, Great Offshore has made acquisitions worth about US$100m (GOFF's market cap, US$475m). The acquisitions may not be as big as the market expected,but they should not put the balance sheet at material risk, are still earnings accretive,in our view, and, in the current economic environment, seem prudent. 

Forays into port management services 

Great Offshore has signed definitive agreements to acquire 100% of two companies, KEI Ltd & RSOS Ltd, in all-cash deals worth a total of Rs1.6bn (US$36m). The company expects to complete the deals in two months. KEI & RSOS provide offshore support and port management services (including single-buoy mooring) based largely on east coast India. KEI 

has been awarded a comprehensive marine operation services contract for Gangavaram Port (15km south of Vishakapatnam) for 12 years from July’08. 

The two companies have a combined fleet of nine offshore support vessels (OSVs) and 10 harbour tugs with four vessels on order and due to be delivered in FY09. According to Great Offshore, aggregate expected revenues for the two companies are Rs1bn (US$23m) in FY09 with profit after tax margin of 30%. Great Offshore expects new-build deliveries and full-year operations at Gangavaram Port to generate growth in FY10. 

We have not studied the asset profile of KEI & RSOS. Given their existing profitable operations and long-term contracts in port management services (annuity characteristics),we believe the acquisitions are is reasonably priced at 5.3x FY09F earnings.